Multiple crises worsening global employment divide, says ILO

Workers load grain at a grain port in Izmail, Ukraine, on April 26, 2023. (AP Photo-Andrew Kravchenko, File)

Penang, 1 Jun (Kanaga Raja) — Mutually reinforcing crises are disproportionately affecting developing countries, and worsening the global employment divide between high-income and low-income countries, according to the International Labour Organization (ILO).

In its latest ILO Monitor on the World of Work (11th edition), released on 31 May, the ILO projected that low- income countries in Africa and the Arab region are unlikely to recover to pre-pandemic levels of unemployment this year.

While the global unemployment rate is expected to fall below the pandemic level in 2023, this reflects stronger- than-expected resilience in high-income countries rather than a generalized recovery, it said.

The ILO said for North Africa, the unemployment rate in 2023 is projected to be 11.2 per cent (10.9 per cent in 2019); for Sub-Saharan Africa, 6.3 per cent (5.7 in 2019); and for the Arab States, 9.3 per cent (8.7 in 2019).

Other regions have managed to reduce their rates substantially below pre-crisis levels, with 6.7 per cent in Latin America and the Caribbean (8.0 per cent in 2019), 6.3 per cent in Northern, Southern and Western Europe (7.0 per cent in 2019), and 7.8 per cent in central and Western Asia (9.2 per cent in 2019), it added.

Apart from unemployment rates, the ILO said variations in the jobs gap point further to a global employment divide.

A new indicator developed by the ILO – the jobs gap – captures all persons who would like to work but do not have a job.

In 2023, the global jobs gap is projected to stand at 453 million people (or 11.7 per cent), more than double the level of unemployment, said the report.

The report said that low-income countries face the largest jobs gap rate at 21.5 per cent, while the rate in middle- income countries stands slightly above 11 per cent. High-income countries register the lowest rates, at 8.2 per cent.

Low-income countries are the only country income group that has seen a long-term rise in the jobs gap rate, from 19.1 per cent in 2005 to 21.5 per cent in 2023, said the ILO.

“Low-income countries in debt distress face a jobs gap of 25.7 per cent in 2023. In low-income countries that are in debt distress, the jobs gap is significantly higher than in developing countries at low risk of debt distress, at 25.7 per cent compared with 11 per cent.”

This reflects the fact that financial and fiscal constraints are hampering their policy responses, further worsening labour market conditions, said the report.

“The findings of this report are a stark reminder of growing global inequalities. Investing in people through jobs and social protection will help narrow the gap between rich and poor nations and people,” said the ILO Director- General, Gilbert F. Houngbo.

“This is why the ILO is launching a Global Coalition for Social Justice. The Coalition will bring together a wide range of multilateral bodies and stakeholders. It will help to position social justice as the keystone of a global recovery, and make it a priority for national, regional, and global policies and actions,” he added.

UNEVEN IMPACT OF POLY-CRISIS

The ILO report said that precipitated by the war in Ukraine and the lingering effects of the COVID-19 pandemic, the ongoing cost-of-living crisis has hurt incomes and livelihoods around the world, especially in the developing countries.

“Global GDP growth is expected to decelerate to 2.8 per cent this year, down from 3.4 per cent in 2022. This slowdown masks a significant divergence between advanced and developing economies.”

The report said that in high-income countries, labour markets remain tight despite the series of interest rate rises (though some employment deficits persist even in these economies).

“While some large emerging economies, such as India, have returned to strong economic growth, low-income countries are facing high levels of debt and rising costs of borrowing, which further constrain their efforts to promote decent and productive employment.”

The report said that high inflation and interest rates continue to weigh on many labour markets, while for some countries the situation is expected to ease.

At the same time, it added, “fiscal space in the poorest economies is severely constrained, which limits their policy responses to a poly-crisis world defined by a range of complex and cascading challenges, including conflict, natural disasters and economic crises that amplify the effects of global shocks stemming from the COVID-19 pandemic and the cost-of-living crisis.”

This situation has contributed to a worsening global employment divide with the most significant labour market deficits evident in low-income countries, said the report.

“Persistent inflation has led to aggressive monetary policy tightening. Inflation rates around the world started to rise in 2021, and jumped significantly in 2022, in all country income groups, leading to significant monetary policy tightening.”

At the beginning of 2023, 37 out of 162 countries, almost all low- and middle-income, had central bank interest rates in excess of 10 per cent, said the ILO.

It said continued high inflation expectations are expected to cause further monetary tightening in around half of the countries: while almost all high-income countries are likely to experience further tightening, only a minority of low- and middle-income countries is expected to do so.

It said countries face a trade-off in managing expected inflation, exchange rate movements, debt sustainability and economic activity.

The report said high interest rates cause problems for debt sustainability and new debt financing, especially since many countries have seen their debt-to-GDP ratios rise significantly during the COVID-19 crisis.

“Exchange rate depreciation in many developing countries has contributed to higher inflation and interest rates, while worsening the external debt burden.”

Indeed, the proportion of countries in debt distress or at high risk of debt distress has doubled to 60 per cent compared with 2015 levels, said the report.

“Enterprises and workers are deeply impacted during a debt crisis. Real interest rates, which are decisive for economic activity, have remained relatively low in advanced economies.”

But continued tightening of monetary policy, along with receding inflation, could raise expected and realized real interest rates to higher levels, which will eventually take a toll on labour markets, it added.

UNEMPLOYMENT AND JOBS GAP

The ILO said its latest estimates project that the global unemployment rate will fall by 0.1 percentage points in 2023, implying a decline in the total number of globally unemployed people of 1 million, which is due to greater- than-anticipated labour market resilience in high-income countries in the face of the economic slowdown.

It said there are signs that further interest rate hikes in high-income countries will be limited as central bankers start to prioritize concerns about the health of the economy, while interest rates in many low- and middle-income countries are expected to remain stable or decline.

“Nevertheless, the risk of the global economy entering a recession remains sizeable, creating a major downside risk for global labour markets.”

Global estimates of unemployment for the years 2020 through 2022 have been revised substantially in light of new data, said the report.

Consequently, global unemployment in 2022 is now estimated at 192 million, compared to 205 million reported earlier.

“In 2023, global unemployment is projected to fall to 191 million, corresponding to an unemployment rate of 5.3 per cent.”

The global recovery in unemployment rates following the COVID-19 crisis has been remarkably fast compared to previous crises such as the global financial crisis of 2008-09, the report noted.

Yet, unemployment in low-income countries and in the regions of Africa and the Arab States is not expected to recover to pre-pandemic levels in 2023, it said.

“The global picture masks significant heterogeneity at the regional level regarding the speed of recovery from the COVID-19 crisis.”

It said that unemployment rates in Africa and the Arab States in 2023 are projected to remain elevated compared to 2019, while other regions such as Latin America and the Caribbean, Northern, Southern and Western Europe, and Central and Western Asia have managed to reduce those rates substantially below pre-crisis levels.

Low-income countries so far have failed to recover to the rate of unemployment witnessed in 2019, it added.

In 2023, the global jobs gap is projected to stand at 453 million people or 11.7 per cent, more than double the unemployment count, said the report.

“The global jobs gap of 453 million includes both the 191 million unemployed people and an additional 262 million who want employment but do not qualify as unemployed.”

The report said that those without a job but not classified as unemployed include, for instance, people who are discouraged from searching and those currently unable to take up employment at short notice, such as persons with care responsibilities.

There is an unequal jobs gap globally, it said, noting that in 2023, low-income countries are facing the largest jobs gap rate at 21.5 per cent, while the rate in middle-income countries stands slightly above 11 per cent.

In contrast, the report said that high-income countries register the lowest rates, at 8.2 per cent.

“Overall, while only a few countries, mostly high-income, experience relatively low jobs gap rates, the rest of the world continues to face persistent employment deficits.”

These are particularly acute for women, who face a jobs gap rate of 14.5 per cent, compared to 9.8 per cent for men, said the report.

“Low-income countries exhibit the greatest gender disparity in employment deficits, with women facing a jobs gap rate that is 9 percentage points higher than that of men.”

While the global jobs gap rate is projected to decline in 2023 by 0.2 percentage points to 11.7 per cent, there are considerable variations between country income groups, said the report.

Low-income countries are projected to see little change in 2023; this is also the only income group that has seen a long-term rise in the jobs gap rate from 19.1 per cent in 2005 to 21.5 per cent in 2023, it added.

The persistence of the jobs gap in these poorest countries reflects the fact that, for various reasons, there are not enough new employment opportunities for rapidly growing, youthful populations, the ILO observed.

Lower-middle-income countries are projected to see almost no change in 2023 but have experienced a sizeable long-term decline, while upper-middle-income countries are projected to see the largest decrease (0.5 percentage points) in 2023, said the report.

“High-income countries have seen the largest long-term improvement in the jobs gap rate with a 4 percentage point decline since the aftermath of the 2008-09 global financial crisis and a drop of 0.3 percentage points in 2023 alone.”

Debt-distressed countries face the biggest labour market challenges and have much more constrained policy space, which will hinder further policy responses in the face of ongoing crises and new shocks, said the ILO.

“In the low-income countries that are classified as in debt distress, the jobs gap is significantly higher, estimated to reach 25.7 per cent in 2023, compared with 11.0 per cent in developing countries at low risk of debt distress.”

The jobs gap rate for women in these debt-distressed countries is expected to reach almost 31 per cent in 2023, reflecting a gender disparity that is evident in all countries, it added.

“The correlation between debt distress and the jobs gap rate points to the critical importance of international financial support for debt-distressed countries in promoting both an economic and a job recovery.”

The ILO said some countries are facing particularly complex and cascading crises, which interact with broader global challenges and exacerbate labour market impacts.

It said they range from natural disasters (e.g. the earthquakes in Turkiye and Syrian Arab Republic) to multiple economic shocks (e.g. in Sri Lanka), which have come on top of the lingering effects of the COVID-19 pandemic and the global cost-of-living crisis.

In Sri Lanka, for example, the report noted that on top of long-running macroeconomic imbalances and structural weaknesses, Sri Lanka has been hit by a series of crises, starting with the Easter bombings in 2019 and followed by the COVID-19 pandemic, which hit the economy and labour market hard, especially the tourism sector.

Output contracted slightly already in 2019 before declining by 4.6 per cent in 2020 during the COVID-19 lock-downs, followed by a partial recovery in 2021 (growth of 3.5 per cent), it said.

The spillover effects of the Ukraine conflict thwarted the nascent recovery and pushed the Sri Lankan economy into a full-blown balance of payments crisis and subsequent debt default in April 2022, it added.

Output declined by 7.8 per cent in 2022 (-12.4 per cent in 2022 Q4), as the country faced severe fuel and other shortages. Inflation reached more than 46 per cent last year, which has damaged real incomes and livelihoods, said the ILO.

The ILO said following the signing of an IMF support programme in March 2023, some stabilization has been achieved though the economy is expected to contract by 3.0 per cent this year.

The report said that in addition to precipitating the surge in inflation and disruption to supply chains starting in 2022, the war in Ukraine continues to impact its own labour market (and neighbouring countries through flows of refugees).

ILO employment projections based on the latest macroeconomic forecasts suggest stagnant activity in 2023 as the hostilities continue to severely constrain the potential of the Ukrainian economy and its labour market, it added.

Based on the assumption that the security situation will remain close to its current state for the entire year, the ILO said it estimates an employment growth rate of just 0.5 per cent in 2023, corresponding to an increase of only 70,000 jobs.

SOCIAL PROTECTION

“Policy gaps in developing countries aggravate the consequences of multiple crises. Social protection is one key policy area that is constrained by the overall economic situation, limited fiscal space and the associated lack of investment in such measures,” the report said.

At the same time, there is robust evidence that investing in social protection will bring about broader economic, employment and social benefits, it emphasized.

Highlighting the slow progress in improving access to social protection, the report noted that a decade has passed since the Social Protection Floors Recommendation, 2012 (No. 202), was adopted, yet still more than half of the world’s population lacks access to any form of social protection.

For example, even though old-age pensions are the most prevalent form of social protection (77.5 per cent of older persons are covered), large coverage gaps remain, it said.

While 97.5 per cent of older persons in high-income countries receive a pension, this is only the case for 38.6 per cent and 23.2 per cent of older persons in lower-middle-income and low-income countries, respectively, it said.

It said that ILO estimates show that the expansion of basic old-age pensions has caused family size to decline in countries with initially high fertility rates, the share of non-farm employment to expand, and GDP per capita to increase.

The report said the positive effects of universal old-age pension coverage in the developing world would be large and long-lasting.

It said that when combining this historical evidence with current social protection coverage data (SDG indicator 1.3.1), simulation results show large, beneficial effects of introducing universal old-age pensions in developing countries.

GDP per capita in those countries would be 14.8 per cent higher within ten years, compared to a scenario where current coverage rates remain unchanged, it added.

“The effects would continue to be felt long after the 10-year horizon. In 20 years, the demographic contribution to GDP per capita would increase by an additional 3 percentage points.”

The total population in developing countries would peak by 2072, more than 30 years earlier than in the absence of the pension expansion, said the report.

This would heavily affect the demographic structure: the ratio of the age-dependent population (ages 0-14 and 65+) to the working-age population (ages 15 to 64), would be 5.3 percentage points lower in 2072 – providing an economic tailwind for more than six decades, it added.

Universal coverage of old-age pensions in the developing world would result in a 6 percentage point reduction in the share of the population living below the US$2.15 PPP poverty line, the ILO suggested.

“This is a drastic reduction from the current rate of 15.5 per cent. Moreover, the entire income distribution would shift towards greater equality.”

The bottom 40 per cent of the income distribution would see its share of income rise by 2.5 percentage points from the current 15.3 per cent, said the report.

This relative income increase would come at the expense of the top 10 per cent of earners, while the share of income in the middle of the distribution would remain roughly unchanged, it added.

“In the current context of constrained fiscal space, implementing a social protection floor for older persons can seem a daunting task,” the report noted, adding that the challenge of financing social protection should not be understated, but it is not unattainable.

It said for developing countries, the annual cost of providing basic old-age pensions at the level of national poverty lines is equivalent to 1.6 per cent of GDP (2.3 per cent and 1.5 per cent of GDP for low-income and lower-middle-income countries, respectively).

For sub-Saharan Africa, the cost would be US$23.3 billion, or 1.4 per cent of GDP and approximately 12.5 per cent of global annual official development assistance, said the report.

“This new evidence provides a strong case, particularly in these times of multiple crises, for national investment as well as global financial support for universal social protection systems,” it added.